Took some flak from readers asking how exactly Publishing 1.0 will die. It's pretty simple:

1) Push-button publishing. Blogger is the first in a very long line of such tools - expect similar ones to emerge across all publishing markets.
2) Open-source/massively distributed content. Ohmynews/WikiNews are the first movers in what's going to be a massively competitive space.
3) On-demand printing & distribution. Like the new breed of on-demand micropublishers, all of whom have extremely cute .com names I've forgotten (but you can check the archives, we've written about them before).
4) Advertising 2.0. Advertising is becoming more effective and targeted, because it's becoming intelligent (or, at least, responsive). Partly, this is due to the Net creeping into every artifact that surrounds us. Investing in any kind of advertising that isn't intelligent - like in traditional publications - will become less and less attractive.
5) eBay/Google - will eviscerate/are eviscerating many niche markets dependent on asymmetrical information.

Together, these trends point to publishing markets where anyone can publish anything at anytime (or, anyone can read anything...). OK, I exaggerate, but the point is barriers to publishing will, for the most part, disappear. At the same time, barriers to consumption will drop as well (ie, distribution costs will drop to zero, the average price of all goods in each segment will fall etc). So the structure of the industry will change radically.

How can the publishing industry compete? I'm not sure it can - it's deliberately walled itself off from innovation for a very long time. But if I had to give advice, I'd say break the walls around your walled gardens, co-opt massively distributed models before they erase you (buy/make WikiNews), develop push-button publishing solutions (why didn't any of you develop Blogger, or even a clone?), fund open-source search and auctions to put massive innovation pressure on Google and eBay. But probably the most important is to begin building a new business model before your industry economics begin to really change - I would build a lab to run cheap experiments by offering radically new kinds of book deals, ads, etc.

Yes, I'm sure you've taken flack. If you want to be understood, drop the pretentious New World/New Economy jargon. It only obfuscates the points you are trying to make� for example, "are eviscerating many niche markets dependent on asymmetrical information". Every yutz with a highschool diploma thinks thinks he or she can write just as well as "insert famous writer here". Well, they can't. Look at the number of blogs that exist. There's a goodly number, but where is the quality? Warts and all, I'll pass on the poorly written blogs for someone who can do more than string sentances together. They are too few and far between. You might argue we'll se more Shakespeares than ever before. Bah, we'll only see the rise of the hack writer, like a deadly algal bloom in the red sargasso sea, choking everything.

There are already quite a number of vanity presses, or micropresses as you call them. Some provide okay work, others are disreputible. Those services don't provide what the big publishing houses can�editors. Most great writers actually work closely with an editor to hone and focus a work. Editors filter out the crap writers, nurture growing talents, and help polish the brilliant writers.

Why would publishers want to compete with google and ebay? That is wholly unclear.

Tom Clancy is not the only 'war writer', but garners a great deal of attention. Let's use him as an example of a popular novelist who makes wads of cash for the publishers. What he provides is a sure hit, an almost guaranteed revenue stream, which allows publisher to take in rising talent and foster their development. It allows publishers to take chances.

You also take of the economics, reducing costs. Have you heard of used book stores? The publishing industries, writers, and readers enjoy them because you can find lost or treasured works inexpensively. And I'll go one step further, and tell you how to acess them for free, at no cost to readers (and not the internet because even it has costs�such as ISP fees). Go to the library.